Swelling health plan losses batter Northwell's earnings

New York City-based Northwell posted an operating loss of $36.2 million in its fiscal first quarter, owing predominantly to a $22.7 million loss by its CareConnect plan for individuals and small groups and a $3.8 million loss by its other commercial plan.

Northwell joins a litany of hospital companies that are trying to stem mounting losses at health plans that they started in recent years to try to diversify into managed care and cater to the newly insured under the Affordable Care Act and Medicaid expansions in 32 states.

Phoenix-based Banner Health and Partners HealthCare System in Boston are trying to adjust premiums and cut costs that resulted in $100 million-plus losses by their health plans last year.

Catholic Health Initiatives of Englewood, Colo., and Tenet Healthcare in Dallas have their health plans for sale after years of losses dragged down their financial performance.

Northwell is counting on a proposed premium increase and some regulatory help for its money-losing CareConnect plan, said Northwell spokesman Terry Lynam.

CareConnect's main problem is a negative risk-adjustment payment that Northwell suffers because its members are deemed less sick than populations served by other plans in New York, Lynam said.

CareConnect's must pay the CMS $124 million this year for its experience for caring for its enrollees in 2016, Lynam said. In the first quarter, the risk-adjustment liability was $29.4 million, a cost that dragged CareConnect into the red.

CareConnect picked up enrollees when Health Republic Insurance of New York folded a year ago and had 117,733 members on March 31, 2017, compared to 90,115 members a year ago. About 13,500 of the insurer's members enrolled through the ACA exchanges, Lynam said.

Northwell, which only began enrolling members in 2014, has received some relief for its risk-adjustment costs in 2018 and 2019, he said. State regulators have informed the system that its risk adjustment will be reduced by 30% next year and 40% in 2019 in recognition of the higher costs that CareConnect is seeing in caring for members, Lynam said.

CareConnect and its other health plan for large groups also have requested a "significant increase" in premiums from state insurance regulators, he said.

Taken together, those changes would result in a big improvement in plan results, according to Lynam.

"We're hopeful of a turnaround," Lynam said.

Not-for-profit Northwell compensated for the operating losses with big investment gains, both realized through the sale of investment instruments and paper gains, the company's first-quarter financial disclosure shows.

The system's realized and paper investment gain in the quarter jumped to $128 million compared with $22.4 million in the year-earlier quarter.